White House Signals Openness To Negotiating Over Tax Demands In Sequestration Deal

WASHINGTON –- The debate over replacing the impending $1 trillion in automatic spending cuts has boiled down to a fight over tax revenues.

Democrats demand them, Republicans abhor them and the White House, while insistent that they be part of the solution, hasn't ruled out negotiating over the specifics.

With just 10 days to go before sequestration takes effect, the time would seem ripe for a bit of urgency to bridge this divide. But Tuesday's political happenings did not do much to instill confidence that a resolution was in the offing. The differences between the two sides aren't unworkable, and if you scratch a bit below the surface, you can see the outlines of a potential compromise. But on the main issue –- taxes -– the gulf remains vast.

As it stands now, congressional Republican leaders have declared that tax revenues are off the table. Having swallowed a fiscal cliff deal that raised more than $600 billion through rate increases and the expiration of other tax breaks, the GOP has no appetite for more.

On the other side are congressional Democrats, who have put forward a proposal that contains a roughly 50-50 split between new revenues and spending cuts. The proposal already represents something of a compromise, as there are some in the party who want sequestration put off entirely and others who would prefer to see higher revenue hikes in its replacement.

But as Tuesday progressed, it seemed clear that the party -- and the White House in particular -- was prepared to go even further. At his daily briefing, Press Secretary Jay Carney insisted that any sequestration replacement bill be "balanced" in its approach, but he refused to go into specifics.

"Balanced means revenues as well as spending cuts, first of all," he said, in response to a question from The Huffington Post. "And then I would note that we support the proposals put forward by Senate Democrats and House Democrats and you can evaluate them in terms of ratios."

While the White House supports bills that split revenue hikes and spending cuts equally, whether it will insist on that ratio is another question entirely. Carney, notably, didn't demand an even split. In early February, meanwhile, top economic aide Jason Furman made the case that even if the sequester deal contained more cuts than revenues, it would fit the president's definition of parity because of how the recent debate over the fiscal cliff played out.

"The final offer [President Obama] had on the table to Speaker Boehner was one that ... was 50-50 at the time," Furman said. "And we've enacted about half of the tax portion of that and almost none of the spending portion of that. And so on a going forward basis, it would have a different ratio than when he originally proposed it."

So, how low is the White House willing to go on revenue raisers in a potential deal to replace sequestration?

In a briefing with reporters on Tuesday, a senior administration official insisted that the main roadblock to a deal was the Republican Party's refusal to move on revenues. But when pressed if that meant, by extension, that the White House would refuse to sign a bill that did not have a revenue component, the official demurred. A replacement bill must be balanced, the official stressed.

The same official specified that the White House was not pushing for an increase in tax rates, but instead, revenue hikes through the closure of loopholes and new limits on deductions. A second official, who also spoke on condition of anonymity, said that the so-called Buffett Rule, which would set a minimum tax threshold of 30 percent on income above $1 million, would not violate that promise. The Buffett Rule is the central revenue component of congressional Democrats' plans to replace sequestration for the remainder of the fiscal year.

Meanwhile, top Democrats insist that they won't take a replacement bill that is solely composed of spending cuts.

"Oh I don't think that will happen," House Minority Leader Nancy Pelosi (D-Calif.) said in an interview, when asked if she or her members would support a deal that did not have a revenue component. "I don't think that will happen. You can't do it. You can't get there from here. You can't cut your way to deficit reduction."

"I don't think there's anything the president would sign" without revenues, she added. "I mean I don't speak for him, but everything he has said is 50-50."

All of this may seem like a moot point, considering that Republican leadership has declared that the debate over revenues is over. If loopholes are to be closed, House Speaker John Boehner (R-Ohio) said on Tuesday, the money raised should be used to offset the cost of lowering tax rates across the board.

“Tax reform is a once-in-a generation opportunity to boost job creation in America," Boehner said. "It should not be squandered to enable more Washington spending."

But not everyone in the GOP is of that mindset, and it's not improbable that, as the deadline approaches, dissenting voices will get louder.

"I would be glad to close some loopholes about these kind of subsidies that are outrageous and disgraceful," Sen. John McCain (R-Ariz.) said Sunday during an appearance on "Meet The Press." "I have said it is time for the president who said the sequester won't happen, maybe sit down with some Republicans, talk to them about this issue so that maybe we can get it resolved."

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